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Saudi letters of credit balloon amid robust economic growth
Published in The Saudi Gazette on 05 - 04 - 2012

Amid Kingdom's robust economic growth, the letters of credit (LCs) issued by Saudi banks totaled SR41.3 billion during January and February, surging by around 26.6 percent over the same period last year, National Commercial Bank (NCB) said in a study, and are set to reach a record high in 2012.
“As one of the main indicators in the private sector, letters of credit through commercial banks blossomed last year alongside growing domestic demand. LCs accelerated to record exceptional levels during the first two months of 2012,” the study said.
An LC is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. The bank also acts on behalf of the buyer (holder of letter of credit) by ensuring that the supplier will not be paid until the bank receives a confirmation that the goods have been shipped.
NCB report said LCs' highest growth was attributed to food grains by 70.1 percent albeit a marginal decrease of 3.9 percent for foodstuff.
Additionally, building materials and machinery posted robust growth during February at 81.3 and 24.6 percent year-on-year, respectively.
Moreover, newly opened LCs have jumped by 42.1 percent year to date on an annual basis, NCB said.
As an indicator of future business activity, newly opened LCs for motor vehicles gained as local distributors buildup their stock of new models, it said.
While settled LCs for foodstuff stalled, newly opened LCs doubled to nearly SR3.8 billion year to date, the report said.
“The Saudi economy provides the support needed for businesses to blossom, as such, we expect LCs to set new highs in 2012,” NCB said in the report.
Saudi Arabia's economy recorded one of its highest growth rates of 6.8 percent in 2011.
The main driver of growth was large activity in construction projects as shown by NCB's Construction Contracts Index which reached a record high at 453.6 points.


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